Page 15 - Trading #101 Course – Part One: Trading Basics

TRADING #101 COURSE – PART ONE: TRADING BASICS /2017-10-06

high liquidity during open market hours and low liquidity at night. After regular market
hours, there are fewer active traders in the market, hence there is less liquidity.

In the Forex market, that trades around the clock, there is high liquidity throughout the
entire day and into the night. There are a lot of night owl Forex traders that are busy
trading when everyone else is sleeping and that provides ongoing liquidity.
Additionally, the forex market is a global market with currencies around the world being
traded. When one country ends its day, another country is just beginning, which also
contributes to the round the clock trading activity in this market. It is truly the market
that never sleeps.

Look at Table 2.2 to see a variety of instruments and market conditions and details on
their liquidity component. They are each categorized as having either high, low or zero
liquidity. You will find information as it relates to market dynamics in the Notes column
in this table.

Table 2.2 Examples of assets and market conditions that have varying levels of
liquidity.
Level Of Liquidity Notes
Cash High Liquidity Typically cash is the most liquid asset,
and most day traders convert their
accounts to cash every evening.

Blue-Chip Stocks High Liquidity Have higher liquidity by nature of the
sheer volume and size of shares traded

S & P e-minis - Futures High Liquidity Popular day trading market, has high
liquidity during regular trading hours

NASDAQ e-minis - Futures High Liquidity Popular day trading market, has high
liquidity during regular trading hours

Forex Currencies High Liquidity The 24-hour Forex market has high
liquidity due to global active trading
Penny Stocks Low Liquidity Penny Stocks have low liquidity due to
the low trading volume
Unlisted Stocks (Pink Sheets) Low Liquidity Pink Sheets have low liquidity due to the
low trading volume
Financial Market Closure Zero Liquidity Markets can be closed to trading due to
significant drops in market value
Market Risk Event Zero Liquidity Acts of God (such as earthquakes) and
Acts of War can cause Markets to be
closed to trading

This table 2.2 is intended to be a frame of reference for educational purposes only. It is designed to acquaint the
reader with a variety of liquidity conditions. Keep in mind that these assets and market conditions are subject to
change, and there may be times when a Blue-Chip Stock, for example, may have low liquidity depending on the
current market dynamics. Typically, a Blue-Chip Stock has statistically higher liquidity than a Penny Stock, but that is
not a guarantee. Past performance of any market, asset or market condition does not guarantee future results.

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